Year to prepare for order-driven trades

A new computerised system for trading the FTSE 100 stocks would not be introduced for at least another year, the Stock Exchange said yesterday.

The Exchange has decided to give member firms the time they wanted to prepare for the introduction of the new system. Member firms had pressed for a minimum of nine months, and possibly as much as a year, to get the system up and running.

The new "order-driven" system will be a radical departure from the present trading methods, introduced exactly 10 years ago, under which market makers offer competing quotations. Instead it will execute trades automatically once they have been input to the computer system.

As part of the changes, the Exchange has decided to abolish the 10-year- old distinction between market makers and other Stock Exchange firms, which it had hoped would continue.

The end of the market makers' privileges was inevitable following a decision by the Chancellor in the summer to extend stamp duty relief to all firms that hold blocks of shares during trading, as long as they are members of a recognised investment exchange.

The decision made redundant an earlier Exchange proposal for the market makers to continue under another name - registered principal traders - who would have had a monopoly on the relief.

The Chancellor's tax changes may also lead to a big expansion of stock borrowing, hitherto the preserve of the market makers. In the new system, any firm with enough capital to satisfy the regulator will be allowed tax relief on borrowed stock, which will allow them to speculate by taking short positions.